Exhibit 99.1
Red Hat Reports Fiscal Third Quarter Results; 22% Sequential Quarterly Growth in
Deferred Revenue and $29.7 Million in Cash Flow from Operations Continue to
Deliver on Linux Momentum
RALEIGH, N.C.--(BUSINESS WIRE)--Dec. 22, 2004--Red Hat, Inc. (NASDAQ:
RHAT), the world's leading provider of open source solutions to the enterprise,
today announced financial results for the third quarter ended November 30, 2004.
Revenue for the third quarter of fiscal 2005 was $50.9 million, 55% higher
than the third quarter of fiscal 2004 and a sequential increase of 10% when
compared to $46.3 million in the second quarter of fiscal 2005. Subscription
revenue was $39.2 million, or 80% higher than the third quarter of fiscal 2004
and a sequential increase of 12% when compared to the previous quarter.
For the third quarter of fiscal 2005, the company reported income before
taxes of $11.3 million compared to income before taxes of $11.2 million in the
prior quarter, and $4.3 million in the third quarter of fiscal 2004.
For the third quarter of fiscal 2005, the company reported net income of
$10.8 million, or $0.06 per share, after taxes of $0.4 million. This represents
an increase in net income of 155% compared to the same quarter a year ago, and a
decrease of 8% compared to net income of $11.8 million, or $0.06 per share in
the prior quarter, when a tax benefit of $0.6 million was recognized.
The company generated $29.7 million in cash flow from operations during the
third quarter of fiscal 2005. After investing $45.2 million to purchase 3.4
million treasury shares, the company ended the quarter with cash and investments
totaling $979 million.
In the third quarter of fiscal 2005, the company increased its deferred
revenue balance to $121.4 million, a sequential increase of $21.7 million, or
22%, as compared to the second quarter of fiscal 2005, and a 170% increase when
compared to a year ago.
Highlights for the third quarter include:
-- Sales of subscriptions of Red Hat Enterprise Linux reached 132,000
units, including 119,000 subscriptions to enterprise IT servers and
13,000 subscriptions to the HPC/hosting marketplace and desktops. All
these numbers represent net new and renewed subscriptions.
-- Income from operations increased to $7.6 million, or 15% of total
revenue.
-- Enterprise subscription gross margins remained strong at 91%; overall
gross margins were 80%.
-- The company added 10% to the workforce, principally in customer facing
sales and support positions, as the company expands globally.
"We are pleased with our progress and continued growth. We are focusing on
those things that bring value to our customers globally, and that make it easier
for them to do business with us. We believe that our results reflect continued
improvements and validation of our subscription model," stated Charlie Peters,
Executive Vice President and Chief Financial Officer.
About Red Hat, Inc.
Red Hat, the world's leading open source and Linux provider is
headquartered in Raleigh, N.C. with satellite offices spanning the globe. Red
Hat is leading Linux and open source solutions into the mainstream by making
high quality, low cost technology accessible. Red Hat provides operating system
software along with middleware, applications and management solutions. Red Hat
also offers support, training, and consulting services to its customers
worldwide and through top-tier partnerships. Red Hat's Open Source strategy
offers customers a long term plan for building infrastructures that are based on
and leverage open source technologies with focus on security and ease of
management. Learn more: http://www.redhat.com. For investor inquiries, contact
Gabriel Szulik at Red Hat, (919) 754-4439.
Forward-Looking Statements
Any statements in this press release about future expectations, plans and
prospects for the Company, including statements containing the words "believes,"
"anticipates," "plans," "expects," "will," and similar expressions, constitute
forward-looking statements within the meaning of The Private Securities
Litigation Reform Act of 1995. Actual results may differ materially from those
indicated by such forward-looking statements as a result of various important
factors, including: the factors discussed in our most recent Quarterly Report on
Form 10-Q filed with the SEC (a copy of which may be accessed through the SEC's
website at http://www.sec.gov), reliance upon strategic relationships,
management of growth, the possibility of undetected software errors, our ability
to adequately maintain effective systems of internal and disclosure controls,
the risks of economic downturns generally, and in Red Hat's industry
specifically, the risks associated with competition and competitive pricing
pressures and the viability of the Internet. In addition, the forward-looking
statements included in this press release represent the Company's views as of
the date of this press release and these views could change. However, while the
Company may elect to update these forward-looking statements at some point in
the future, the Company specifically disclaims any obligation to do so. These
forward-looking statements should not be relied upon as representing the
Company's views as of any date subsequent to the date of the press release.
Tables to follow -
RED HAT, INC.
CONSOLIDATED STATEMENTS OF
OPERATIONS
(In thousands - except per share amounts)
Three Months Ended Nine Months Ended
-------------------- ------------------
Nov. 30, Nov. 30, Nov. 30, Nov. 30,
2004 2003 2004 2003
-------------------- ------------------
(Unaudited)
Subscription and services
revenue:
Subscription:
Enterprise technologies $38,113 $17,210 $102,022 $43,284
Retail 512 4,091 1,448 11,859
Embedded 597 466 1,245 1,602
----------- -------- --------- --------
Total subscription revenue 39,222 21,767 104,715 56,745
----------- -------- --------- --------
Services:
Enterprise technologies 10,771 9,887 31,749 28,073
Embedded development
services 932 1,229 2,549 3,148
----------- -------- --------- --------
Total services revenue 11,703 11,116 34,298 31,221
----------- -------- --------- --------
Total subscription and
services revenue 50,925 32,883 139,013 87,966
----------- -------- --------- --------
Cost of subscription and
services revenue:
Subscription:
Enterprise technologies and
retail 3,554 2,365 8,274 7,052
Embedded 59 69 190 288
----------- -------- --------- --------
Total cost of subscription
revenue 3,613 2,434 8,464 7,340
----------- -------- --------- --------
Services:
Enterprise technologies 5,684 5,356 16,411 15,197
Embedded development
services 792 1,003 2,405 2,482
----------- -------- --------- --------
Total cost of services
revenue 6,476 6,359 18,816 17,679
----------- -------- --------- --------
Total cost of
subscription and
services revenue 10,089 8,793 27,280 25,019
----------- -------- --------- --------
Gross profit enterprise
technologies and retail 40,158 23,467 110,534 60,967
Gross profit embedded 678 623 1,199 1,980
----------- -------- --------- --------
Gross profit on enterprise
technologies, retail and
embedded revenue 40,836 24,090 111,733 62,947
Operating expense:
Sales and marketing 15,652 10,062 43,622 28,114
Research and development 7,883 7,002 23,353 18,885
General and administrative 8,360 4,873 21,006 13,288
Stock-based compensation and
amortization of intangibles 1,350 537 4,273 2,037
----------- -------- --------- --------
Total operating expense 33,245 22,474 92,254 62,324
----------- -------- --------- --------
Income (loss) from operations 7,591 1,616 19,479 623
Other income (expense), net 5,384 2,694 18,715 8,556
Interest expense (1,684) (49) (4,802) (233)
----------- -------- --------- --------
Income before provision for
income taxes 11,291 4,261 33,392 8,946
Provision (benefit) for income
taxes 447 - (194) -
----------- -------- --------- --------
Net income $10,844 $4,261 $33,586 $8,946
=========== ======== ========= ========
Net income per share:
Basic $0.06 $0.02 $0.18 $0.05
Diluted $0.06 $0.02 $0.17 $0.05
Weighted average shares
outstanding:
Basic 182,340 173,996 182,750 172,417
Diluted 192,226 184,210 194,283 185,641
RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
Nov. 30, February 29,
2004 2004
----------- -----------
(unaudited)
Current assets:
Cash and cash equivalents $234,436 $544,889
Investments in debt securities $69,751 $63,712
Accounts receivable, net 43,616 38,346
Estimated earnings in excess of billings 3,618 4,326
Inventory 2,085 2,794
Prepaid expenses and other current assets 8,581 5,971
----------- -----------
Total current assets 362,087 660,038
Property and equipment, net 30,954 29,448
Goodwill and identifiable intangibles, net 69,810 69,713
Investments in debt securities 674,835 332,783
Debt issue costs-convertible notes 13,022 15,103
Other assets, net 5,905 4,568
----------- -----------
Total assets $1,156,613 $1,111,653
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $6,445 $7,154
Accrued expenses 19,322 15,619
Deferred revenue 97,284 62,751
Current portion of capital lease obligations 459 898
----------- -----------
Total current liabilities 123,510 86,422
Deferred lease credits 5,227 5,359
Long term deferred revenue 24,153 10,945
Capital lease obligations 154 538
Convertible notes 600,000 600,000
Commitments and contingencies - -
Stockholders' equity:
Noncontrolling interest in subsidiary 537 359
Preferred stock - -
Common stock 19 18
Additional paid-in capital 710,554 695,722
Deferred compensation (5,786) (9,293)
Accumulated deficit (243,638) (277,224)
Treasury stock, at cost (52,628) (7,436)
Accumulated other comprehensive income (loss) (5,489) 6,243
----------- -----------
Total stockholders' equity 403,569 408,389
----------- -----------
Total liabilities and stockholders'
equity $1,156,613 $1,111,653
=========== ===========
RED HAT, INC.
CONSOLIDATED STATEMENTS OF
CASH FLOWS
(In thousands)
Three Months Ended Nine Months Ended
-------------------- -------------------
Nov. 30, Nov. 30, Nov. 30, Nov. 30,
2004 2003 2004 2003
----------- -------- --------- ---------
(Unaudited)
Cash flows from operating
activities:
Net income $10,844 $4,261 $33,586 $8,946
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and
amortization 2,557 1,654 7,272 4,574
Deferred income taxes (693) - (1,929)
Stock-based compensation
expense 1,109 384 3,507 1,839
Earnings in noncontrolling
interest in subsidiary 133 48 178 176
Provision for doubtful
accounts 544 292 1,558 997
Amortization of debt issue
costs 785 - 2,218 -
Other 88 44 121 67
Changes in operating assets
and liabilities:
Accounts receivable and
estimated earnings in
excess of billings (7,516) (7,305) (4,518) (12,245)
Inventory 602 (110) 590 (681)
Prepaid expenses (756) 874 (886) (223)
Intangibles and other
assets (79) (24) (1,294) (343)
Accounts payable (894) (1,065) (709) (1,851)
Accrued expenses 3,876 931 6,209 1,017
Deferred revenue 19,163 12,095 45,884 25,644
Deferred lease credits (47) (40) (131) 17
----------- -------- --------- ---------
Net cash provided by
operating activities 29,716 12,039 91,656 27,934
----------- -------- --------- ---------
Cash flows from investing
activities:
Purchase of investment
securities (111,164) (37,200) (579,772) (130,697)
Proceeds from sales and
maturities of investment
securities 110,342 32,870 218,961 107,460
Cash used to acquire
businesses (303) - (303) -
Purchase of property and
equipment (2,609) (1,416) (10,547) (5,260)
----------- -------- --------- ---------
Net cash used in investing
activities (3,734) (5,746) (371,661) (28,497)
----------- -------- --------- ---------
Cash flows from financing
activities:
Proceeds from short term
notes payable - 15,000 - 57,957
Repayments of short term
notes payable - (15,003) - (57,989)
Offering costs - issuance of
convertible debt (67) - (137) -
Proceeds from issuance of
common stock under Employee
Stock Purchase Plan 522 592 1,394 1,014
Proceeds from exercise of
common stock options 893 10,705 13,004 15,491
Purchase of treasury stock (45,192) - (45,192) -
Payments on capital lease
obligations (278) (449) (815) (1,033)
----------- -------- --------- ---------
Net cash(used in)
provided by financing
activities (44,122) 10,845 (31,746) 15,440
----------- -------- --------- ---------
Effect of foreign currency
exchange rates on cash and
cash equivalents 3,124 809 1,298 1,188
Net decrease in cash and cash
equivalents (15,016) 17,947 (310,453) 16,065
Cash and cash equivalents at
beginning of the period 249,452 43,368 544,889 45,250
----------- -------- --------- ---------
Cash and cash equivalents at
end of period $234,436 $61,315 $234,436 $61,315
=========== ======== ========= =========
CONTACT: Red Hat, Inc.
Company Contact:
Leigh Day, 919-754-4369
lday@redhat.com
or
Investor Contact:
Gabriel Szulik, 919-754-4439
Director, Investor Relations
gszulik@redhat.com